Regional Economic Outlook Update:
Middle East and Central Asia

Middle East and North Africa: Historic Transitions under Strain

The Middle East and North Africa (MENA) region is going through a period of unprecedented change. In
the 'Arab Spring' countries, political transition, pressing social demands, and an adverse external
environment have combined to increase the near-term risks to macroeconomic stability. These risks were
contained during 2011 but, with growth faltering, unemployment rising, and continued fiscal and external
pressures, 2012 will be an equally challenging year. Moreover, many countries are faced with diminished
policy space, having eaten into their foreign exchange and fiscal buffers during 2011. There is a risk that
these developments could derail the historic transition that is under way in these countries, and managing
this risk is a shared international responsibility. Arab Spring countries need to set out on their own paths
toward economic modernization and transformation. At the same time, the international community is
called upon to provide financial support and technical and policy advice, as well as enhanced market
access, to support homegrown reform agendas. On the other hand, Middle East oil exporters are benefiting
from high oil prices. Growth in 2011 was concentrated in Gulf Cooperation Council countries, but is
expected to pick up further and be more broad-based across the region in 2012.

Caucasus and Central Asia Set for Solid Growth,
But Global Risks Loom Large

The Caucasus and Central Asia (CCA) region recorded fairly strong economic performance in 2011,
underpinned by robust commodity exports and remittance inflows. Although growth of such flows is
expected to moderate in the near term—reflecting a weaker external environment—CCA economies are
still expected to hold up well. This broadly positive outlook presents an opportunity for CCA
policymakers to rebuild policy buffers, prepare for downside risks that might materialize, and foster an
inclusive growth agenda.